ZoomInfo Technologies Inc. (GTM) Earnings Call Transcript & Summary

Hey. Welcome to our next session. I'm really happy to have the team ZoomInfo. Cameron, thanks for joining us.

I'll start with a slightly kind of strange question. I'm not throwing you under the bus here. So the -- like what's interesting is like ZoomInfo is like super unique in my coverage universe because you have very, very good growth and also very, very good margins. How is that possible?

So, thanks a lot for having me, Raimo. It is one of the things that drew me to ZoomInfo to start with. And personally, the thing that I find most exciting is that we are focused on growth, and we're constantly focused on how we can provide more value to our customers. But we don't want to sacrifice efficiency in terms of doing that. So, we're very focused on how we can do things better every day and how we can continue to drive efficiency. And honestly, for a lot of software companies, a lot of the inefficiency that you see, where you see a large amount of spend relative to revenue is with respect to sales and marketing. And so the first thing that we start off with is using our own platform to drive efficiency in our team. It's relatively obvious, but hasn't been the case for decades or centuries that salespeople should be using high-quality data and insights to drive their motions and not necessarily relying on networking or personality to drive sales. So starting with using our own platform to drive that efficiency and then layering on enablement capabilities and continuing to focus on data and instrumenting the business model is really how we kind of help drive that efficiency. And then personality or DNA pervades throughout the entire rest of the company to drive higher margins while still driving growth. And that, ultimately, for us, that means that we can reinvest that operating leverage that we're just naturally generating in the business back into sales and marketing capacity and back into R&D innovation to drive growth sustainably over the long-term as opposed to having to cut back on something to ultimately drive cash flow for our investors.

Yes. And talk a little bit about the evolution of the company because if you think back like trying to get contact data is something that has been around for quite a long time. But for a long, long time, there wasn't a lot of innovation in the space like Dun & Bradstreet. Everyone knows them. And there's maybe 1 or 2 other providers. What are you seeing in terms of, like, what changed and what kind of made ZoomInfo so successful?

Yes. I think a big part of what made ZoomInfo so successful is that it did focus early, early on in terms of quality. I think Henry, our Founder and CEO, realized that you can get contact information. And oftentimes, it's stale or not great, and you can try and sell it. But what's really going to drive value for a customer is that, that's high-quality information. And then we continue to translate that to all the other data points that we've built out over the years. And so one of the things that's really great about our business is that we are able to drive high levels of net retention. If you look at our enterprise cohort of customers, the net retention is well over 120%. And that's because we're delivering value to our customers in a high-quality data that they're going to continue to come back for more. And then we're able to layer on workflow and other capabilities on top of that to activate that data as quickly as possible and really kind of speed that time to value for our customers.

Also -- I mean -- and I'm seeing the DiscoverOrg kind of the water bottle behind you. Is there also like a technology element that you guys are using technology a lot more because technology has advanced around big data, AI, to clean up data and make the data more relevant?

Yes. And I think that's totally true. And what we've been able to do over the years was translate all of the mechanisms and capabilities of -- in the early days of DiscoverOrg. We were manually verifying data across the board. What we've been able to do through evolution is to build that manual verification into processes and then build those processes into a machine learning engine and then continue to improve that. And so one of the big unlocks for us was that, that historical manual verification process was manually intensive and didn't scale super well. When we acquired ZoomInfo in 1999, we were able to leverage the technology that we've built around driving quality at scale, at a business and level that across. ZoomInfo had developed a lot of technology in terms of gathering a lot of information, and they had a kind of broader set of people and companies that they have in their database. And the combination of those really unlocked a much, much larger market for us, where we were able to take what we've done largely for people that were selling into the IT department and provide that same level of quality to people that were selling into facilities or people that were selling to an HR department or people that are selling into just standard purchasing department. That expansion of the market has really helped to accelerate our growth and drive a much broader customer set overall, which is exciting.

And what are you seeing in terms of, like the nature or the change of the competitive field now? I mean, on our customer calls, we haven't heard Dun & Bradstreet or someone of those kind of names like forever, like who do you consider now like as a real competitor, if there's anyone?

Yes. When we look out and we track all the customers that are talked about -- all the competitors that are talked about by our customers or other people that we see in the market, there's really no one that's providing the kind of platform that we have across all of the different data points. There's no one that's combining intent with customer -- with company information with all the firmographics and technological information, along with the contacts and org charts. What we do hear is there are a lot of companies that say that they're the next ZoomInfo, but there's very little kind of behind that. And honestly, the kind of quality, capability that you get at scale and being able to run literally over a decade of these learnings about how to deal with business-to-business information and then continue to scale that over a machine learning engine that's covering hundreds of millions of companies and hundreds of millions of people, like -- I feel like there's just no one that has that capability set. And now what we're doing is continuing to improve that by layering on the data orchestration capabilities, as well as engagement capabilities with our Engage product or Chorus or Chat. So, we're kind of broadening the number of competitors that we might run into. There might be someone that's doing conversation intelligence or doing sales automation. But we're going to make everything better through that data backbone that we're able to provide and really integrate in the data with the capability set to the point where you can't just build more software to deliver value to the customer, but the data itself in that really strong integration capability is what helps to drive more value and ultimately, more growth for us.

Yes. Yes. And you talked about some of the expansions already like around the Intent, the Chorus acquisition. Maybe let's unpack that a little bit. Like, on the Intent side, that was like one that sounds really interesting to layer more information on just rather than just having contact data. Like, where are we on that journey?

I think in terms of penetration into the market, it's still early. I think the product is great, and there'll be additional capabilities that we'll be able to add into the product. But we started selling Intent a while ago, and we started really kind of gathering data from other vendors, and then we expanded that and had a variety of vendors. Then, we ultimately identified that Clickagy was one of the best sources of Intent data that we'd be able to generate. So, we obviously acquired it and then built out even better capabilities in terms of real-time Intent, in terms of the ability to customize topics that you can literally create Intent topics on anything you want and get those signals over time. I think there are probably more things that we'll continue to evolve, and it's something that we're super focused on, on investing into purely because when we think of the world, you think 10 years out, what are the things that salespeople are definitely going to want? Without question, they're definitely going to want vendor people in market doing research, looking for my product. That's something they're definitely going to want. So, we're focused on continuing to evolve and invest in them so that we can deliver the best Intent product that's out there and deliver those signals to our customers so that they can continue to be successful and effective in their motions.

Yes. Yes. Yes. And what -- I mean, how do you monetize that? Like, is that a -- is it a higher price per content? Is it an extra module? Like, how do you bring that to market?

Yes. So, our pricing strategies that we have at pro level, at advanced level and elite level. And basically, our pro level is better than, but similar level of functionality, so maybe some of the other competitors that you'll have out there. But then as you move into the advanced capabilities, it's that platform that no one else can deliver. And in the elite level, that's where you get access into the Intent capabilities. So moving up levels, it's a higher price tag. And then, obviously, we scale up with our customers based on the amount of data that they're integrating and the number of seats that they're using to access the platform. So, our largest customers are going to be multimillion-dollar customers that have all the capabilities and they're scaling across a very large organization. But even a small business, they can get into that elite level. It's just stepping up in terms of the platform capabilities, and it can be at a much lower -- a much lower price tag just you're using in a -- across a smaller organization.

Can you share any numbers? Yes, you do. Any numbers about where we are?

We totally share numbers. We're good like that. Among the numbers that we sell, we do focus on customers that generate more than $100,000 in ACV. That's been a place where we've really been able to accelerate and get more and more customers into those higher levels of spend. And at the end of Q3, we had over 1,250 customers over $100,000 in ACV and have grown 70 or so percent versus where we were in the prior year. So, yes, I think we continue to see a lot of interest in customers that are rolling out the platform across a bigger part of their organization and really starting to drive value like that.

Yes, yes. And so we should kind of basically assume that if someone gets over $100,000, et cetera, there will be a platform in there, there will be Intent in there and et cetera.

Yes. There doesn't have to be Intent in there. Even at that level, if you have it over a broad -- if you have it over a couple of hundred seats, yes, you can still get to those levels without having Intent. But certainly, the larger customers tend to invest more aggressively into higher levels of functionality as well.

Yes. Okay. Got it. And then so how does Chorus fit in there? I mean, it was a very -- it's an interesting acquisition with a decent size. Like, how does the understanding communications, et cetera, help you?

So, we, in all of our acquisitions, we're really looking for applications that can be vastly improved by the data that we bring to bear and can also improve the data overall. So if you think about Chorus as a conversation intelligence tool, one of the things that it's doing is capturing a treasure trove of information in terms of all the meetings that you're having, all the conversations and phone calls that your sales guys do. And at a base level, it's recording and transcribing those. But then the real value in AI and development that goes on is identifying all the key moments within those meetings, so that you can then run analytics around them and kind of create a kind of more understanding of what's going on. So, for instance, if you want to look at your competitive set, how often they're being mentioned in different calls, you need to have transcription, but then also identifying when they're talking about a company like Salesforce versus just talking about their sales force. That's an important differentiation for some of our customers. And by bringing on that capability, we've been able to then drive better learning, and those learnings can then trigger things within our platform. So, for instance, I'm a CFO, so let's talk about, you're in a conversation with us as a sales guy with a prospect and he says, oh, I got to go, talk to my CFO about do I have budget for this. Automatically, A, we know who the CFO is. We have all their contact information. Even before you end the call, we can trigger a motion, whereby, you're sending them an ROI white paper that you've developed. And maybe you don't just want to send it to the CFO, you want to send it to all the senior people and the finance team because maybe he's not actually one of the CFO, is going to be like the VP of Finance or FP&A or whatever else. So, you can start with a motion like that. You know who all those people are. You have a buying committee to like feed that first-party triggers and insights back to ZoomInfo to run motions. On the other side, we're able to make Chorus incredibly better by feeding information into that. So part, of course, that we have is a momentum product, where you're able to see how well deals are going because you're identifying all those key moments within a deal. You're under -- you maybe have a sense of, okay, I need to make sure that I've talked to the VP, or I need to have a buying committee. Unless you have something like ZoomInfo, you haven't necessarily integrated them for every customer that's out there. Who are the VPs you should be talking to? What is the buying committee? How do you reach all of these different capabilities? So by feeding back ZoomInfo information into that momentum part of the Chorus product, we're able to make that meaningfully better where it's not just, have you talked to 5 people, have you talked to the right 5 people? Do you know who they are and how those things are going? Have you reached -- if you need to have a pricing conversation, have you had the pricing conversation with the VP-level person and not just a director-level person? All of those things are key to identifying anomalies within your deal, which is part of having all of that first-party information in order to drive success over time.

And is that part of that highest SKU? Or do you pay -- is that an extra one? Because that seems like almost outside of the normal kind of offering.

Yes. So at this point, momentum comes with the Chorus SKU. If you have the ZoomInfo platform as well, you start to get that greater integration more natively, but you obviously have to buy both in order to generate value. And, yes, I think that's the vision and development, where literally, Chorus, is just going to be part of ZoomInfo. And when you have both, you're able to generate so much more value out of the capability set than just another conversation intelligence platform that's just building more software. The data and insights that you get are the way that we're going to be able to differentiate and really add more value for our customers.

Yes. Okay. No, that makes a lot of sense. And it must be exciting, yes. And let's switch gears a little bit on another opportunity that you're working on is around moving just -- not just into sales, but also having a motion into HR and hiring. Talk to that a little bit. Like, is it exactly the same data set? Do you need to kind of add some extra stuff to that? And where are we on that journey?

So it is, actually, mostly the same data set. We actually got pulled into that largely because there were recruiters who just started using the platform for recruiting. They either heard about it from their sales teams or heard about it from friend or whatever. So that pull into the talent acquisition and recruiting market was one that really started by people just using the platform, and then they come back and say, well, yes, it would be nice if we did this or whatever else. There are some incremental data points that we've started to expose in order to facilitate their recruiter use case. Things like years of experience are things that salespeople don't care that much about, but recruiters really do. So, we've added in those sorts of data points. We've developed some additional intelligence around recruiting. So, we've developed a likely to listen score. We take a number of data points like how long have they been in their current position and not been promoted. Do their boss just get -- did their boss just leave? Or did they get a new boss? Did the company just get acquired? Or did they just get funding? All of those different data points feed into a likely to listen score so you can prioritize on people that are more likely to be looking for a new job. And all of those capabilities, though, are largely based on the data set that we've always had. One thing that we've also done is layered on our Engage functionality on top of the -- on top of the career addition, which enables recruiters to really do stuff that they've never been able to do before. If there's one place in the enterprise that's less digitized than sales, more based on just networking and bespoke manual solutions, it's probably the talent acquisition part of the world. And so the Engage functionality allows them to templatize different motions, to organize different positions and to really take all of the data that we have and allow them to kind of automate and scale those motions that they're running in order to source new candidates across a number of areas, which is exciting, and we're getting a lot of positive feedback from customers with respect to that as well.

It's -- I'm almost -- yes, I'm going back to my first question. Because if I look at -- if I listen to you and I'm still -- the next question is international window, but there are so many areas of growth that are ahead of you, it must be so exciting. The -- on that -- so now this was product so far. Let's talk a little bit about distribution expansion into Europe. Going back to last conference call, you had like really good European growth. And ITs, you don't even have your European sales offices properly open and contributing. So some guy from Boston calling my German counterparts. It must be a good conversation. Like where are you on that journey? And I mean, given that your sales offices are only really opening now, you are only at the very beginning here.

Yes. No. And you're right, part of the reason that we're excited and continue to see so much stress is that everything is really hitting its stride here in 2021. And international is no exception to that. In fact, international is probably doing better than anyone expected it to do. Yes, as you mentioned, largely driven by the pandemic, it was hard to envision sending people from the US to go open an office in London over the past 18 months or a year or whatever. So what we ended up doing was waking people up early. In Boston, we created a team that was just focused on Europe, and we'll come up early to align their hours with European time zones, but we got a real lift out of that. Prior to that, we've invested in improving the data internationally and tuning our algorithms to make sure that it was capturing and kind of processing and cleansing international data properly. Once we kind of got that running, we've seen a real lift out of just focusing on the area and having people in Boston [ call in to ] Germany and France and the U.K. and wherever else. But I think, we expect, and it's only natural to expect that we'll get an even further lift by having people in country in the UK to start with. We've hired that first set of people we're bringing to US to really indoctrinate them into how we do things and what makes us so special and efficient. And then we'll use that team to seed a larger office that we're going to invest into in 2022. And yes, I think there's really no one in the US that has a platform that can compete with us. That's even more so true internationally. Even the kind of niche vendors that are only providing a particular data point or particular kind of piece of software, they're not as focused internationally and don't have the level of scale. So, I think there's even more white space opportunity for us to continue to grow and make the international part of our business a bigger contributor. And even today, it's an over $80 million business. So if you think about other B2B data providers that are focused on the sales space, like -- that's a really big business and we're going to be able to continue to accelerate that growth going forward, which is exciting.

Yes. Yes. And the -- last couple of minutes, I wanted to talk about like profitability. So, your cash flow margins are very, very healthy. And part of that, I always thought was the efficiency that you talked about earlier, but also maybe to some degree that it's like one clean product with a very kind of straightforward sales motion that might have helped you there. As you get kind of broader and into other areas, do you think there will be a level of margin degradation? Or do you think that level that you have at the moment will hold? First question. And then the follow-up to that is that maybe an argument to break it down actually to grow even faster like -- but let's deal with the first one first.

Yes. So on the first question, look, what we sell, if you compare it to, let's say, accounting software, what we sell is much closer to Excel than it is to SAP. It doesn't require a ton of implementation. It doesn't require a ton of customization. When you look at it, it's obvious what the value is and how you can use it. And as we bring in more functionality to activate that data more easily, we aren't straying down the road where all of a sudden, NetSuite or Oracle or SAP, we're still in the -- this is very obvious. If you think about Chorus as an example, Chorus is a passive implementation. You download it. You kind of set your permissions in Zoom or Teams or your dialer or whatever it is, to like allow it to interact and you're done. And then you just start getting a treasure trove of information. Even Engage is fairly similar. And you kind of -- you set it up, you train people, you need to like walk through, and we have a very easy wizard to say, okay, here's the motion that you wanted to find. You have templates already in there. It's very easy to kind of get that motion going. So, I don't think that we're going to see any degradation just related to selling more pieces. If anything, we're focused on continuing to harvest the natural operating leverage that you see in any software business and reinvest that back into sales and marketing capacity so that we can continue to grow at higher levels for a sustainable, long period of time and then just back to R&D innovation so we can continue to add value to the customers and drive that longer -- drive more growth over the long term. And I think that, in our mind, margins are a reflection of efficiency. And we're very efficient, and we're aiming to maintain that efficiency over time because efficiency then drives scalability. We can actually add more because we're efficient versus if you're not efficient when you're adding, you have to add a lot more expense in people and it doesn't drive the same levels of return. So the efficiency actually enables us to be scalable and drive growth over the longer term. In terms of arguments or bring it down, at some level, we have brought it down over the past 6 quarters or whatever. But we brought it down in a way where we were driving incremental growth or accelerated growth out of that. So, our organic growth when we were going public was around 40%, 41%. We've actually brought that organic growth up to 54%. We've been investing into the business because there is some upfront costs and customers to come on and so forth. And so in my mind, yes, the margins that we're able to deliver, assuming that we maintain efficiency or maybe you get a little less efficient over time, but you're maintaining higher efficiency than anyone else can generate. As we grow off a bigger and bigger base and that percentage growth starts to drift down a little, we actually expect our margins to drift up, just because we have a bigger base that we're investing off of as well. And so, yes, when we get back down into the 40% growth rates, we'd expect our margins to lift back into the kind of mid-40s that we've seen when we were going public and layering on those public company costs. And over time, as a multi-billion dollar revenue company, it will probably drift down a little further and we'll see margins continue to rise off of that.

Yes. Okay. Perfect. Hey, Cameron. I see my time is up. And that was also a very, very good closing statement. Great to cover you. It's a really exciting story. And then I'm kind of somewhat jealous about all the different growth drivers there, but you still have to execute as well.

That's the key again. That's what we're focused on. But thanks a lot for having us. And it's a great conference to be a part of us.

Thank you. Good to see you again and happy holidays.